A renewed bout of worry over how much tightening the Fed has left to do has taken the market lower over the past two weeks, taking most stocks down in the process. Even so, to this point, we’re looking at the pullback at tedious, yes, but also acceptable--all of the indicators that turned positive in January have taken on some water, but remain positive, as have the vast majority of potential leaders. We’re far from complacent, and if the weakness spreads, we’ll pare back, but we remain optimistic and are standing pat tonight.

Tonight’s issue is heavy on new ideas, including some enticing names in Other Stocks of Interest and two chip stocks that we’re very high on--both quack like fresh leaders, and it’s good to see the (growthy) chip sector itself act well, too. Bottom line, our antennae are up, but going with the evidence, we’re still leaning bullish, though also remaining flexible if something definitive changes.

America’s economy has been resilient in the face of rising interest rates, pushing the 10-year Treasury to the cusp of 4%. Earnings have been pretty good but ironically, the threat of too strong an economy, or a recession, seems to be weighing on markets. Our Exscienta (EXAI) was stopped out while Centrus Energy (LEU) was up 14% yesterday after positive earnings.

What started out looking like another positive week for the market later turned into a week of little gains or losses, as economic data and Fed speak weighed on stocks on Thursday and Friday. For the week the S&P 500 and Dow fell marginally, while the Nasdaq rose just over 0.5%.

Though cannabis sector sentiment is extremely dark because of price compression and lingering bitterness after the December drubbing, there are several reasons to be bullish on the group.

This suggests that it’s a good time to add to cannabis names as a contrarian investment. Warren Buffett tells us that the market should serve us, rather than influence our moods. If I am right about the underlying bullish trends, the market is serving up an opportunity in cannabis. But you have to look at this as a medium-term play.

We know about all the negativity in the space – declining wholesale prices, overproduction, the failure of politicians to get the ball over the line in banking reform in December. But what about the positives?

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the March 2023 issue.

While large restaurant companies cruised through the pandemic, smaller companies struggled. Some, however, are now undertaking promising turnarounds. We highlight four new ideas and provide updates on two previously discussed small-cap restaurants.

For struggling companies, free cash flow is their lifeblood. By using free cash flow yield, we can identify undervalued companies with plenty of cash flow that provides a margin of safety. We discuss three interesting stocks.

Our feature recommendation this month is a high free cash flow yield situation. Retailer Kohl’s (KSS) is viewed by investors as a broken company left behind by time, trends and technology, with unsettled leadership, further pressured by bloated inventory, a possible recession, and rising labor and goods costs. We see a company with a history of stable revenues and cash flows, that now has a highly capable operator at the helm, whose shares have a free cash flow yield of 13%. The generous dividend pays out close to half of this cash flow, producing a 6.2% dividend yield.

Stop us if you’ve heard this scenario before: The market gets a head of steam going, but after some inflationary reports, the Fed begins to jawbone the market, which leads to the market giving up the ghost. That happened at least a couple of times in 2022, so our antennae are up given the recent inflation reports and some tough talk from Fedheads last week. That said, once again, the bottom line is that most of the key evidence is still bullish, so while we’re honoring stops and aren’t piling in here, but we’re also holding onto names that are acting normally. We will drop our Market Monitor down a notch (to a level 6) to respect the recent dip, but we’re most interested in how the market responds now that it’s down near support.

This week’s list again has something for everyone, with our Top Pick a well-situated firm that’s helping to lead a group move and just reacted well to earnings.

The market has hit its first real rough patch of 2023, but so far the damage has been fairly limited. Still, it makes sense to add some protection, so today we’re adding a value stock that’s been one of the better performers in Bruce Kaser’s Cabot Undervalued Stocks Advisor portfolio for the past six months – but still has plenty of upside. Also, with the Stock of the Week portfolio at max capacity, we are parting ways with several positions to clear out some room for better opportunities in the coming weeks.

Stocks have rallied so far this year on optimism that we can get through this inflation and Fed rate hiking cycle without much economic pain. That’s what seems to be happening so far. But this latest “soft landing” rally is facing a formidable foe – history.

Rate hikes almost always slow the economy. But there is typically a long lag time. Since 1961, the Fed has embarked on nine inflation-busting, rate-hiking cycles. Eight of those cycles have led to recession. The yield curve has inverted, a phenomenon that has almost always preceded a recession.

We locked in our first profit since our two losing trades back at the beginning of February, near the near-term highs for the S&P 500.


Our SPY March 17, 2023, 440/445 bear call spread that we sold for $0.63 on February 2 was only worth $0.15 after the pullback in SPY mid-week. As a result, we decided to lock in the $0.48, or 10.6%, and take all risk off the table. With over three weeks left in the trade it didn’t make sense to continue to hold on to the trade for the potential to make an additional $0.15.

As earnings season comes to a close, we still have several opportunities ahead of us.


The holiday-shortened week starts with the potential success or failure of our Home Depot (HD) trade placed late in Friday’s trading session. Due to the market closure on Monday and HD’s earnings announcement prior to the opening bell Tuesday, we needed to place a trade on Friday.

February expiration has passed and we were able to lock in 14.97% on a cumulative basis for the cycle. Three out of our four positions made a profit with GDX essentially closing out the expiration cycle at breakeven, as we only lost $0.05 on the trade.

Our cumulative total return since starting the service just over eight months ago is 64.67%.

What started out looking like another positive week for the market later turned into a week of little gains or losses, as economic data and Fed speak weighed on stocks on Thursday and Friday. For the week the S&P 500 and Dow fell marginally, while the Nasdaq rose just over 0.5%.

So far, October looks better than September for the market. After falling 4.8% in September, the worst month since the pandemic recovery began, the S&P 500 is up slightly for October.

Greentech held the support levels this past week we wanted and, yesterday and today, have rallied back over the sector’s 40-day moving average, a bullish sign.

Last week, we wrote about how lower quality, in both home appliances and tangible money, debases value and is a form of inflation. Today’s note includes some of our current views on inflation and capital markets, and what investors can do to help mitigate inflation’s effects on their portfolios. The goal, of course, is to protect the long-term purchasing power of investment assets.

This week’s update includes our comments on LambWeston’s (LW) earnings as well as commentary on several stocks. We had no ratings changes this week.

U.S. crude oil hit a seven-year high as stocks, especially tech stocks, face headwinds. Today I am moving dominator Taiwan Semiconductor (TSM) to a Sell as Taiwan, America, China and Japan play a dangerous game. China sent 52 warplanes into the islands air buffer zone after the U.S. and allies held exercises nearby.

So far, October has been volatile. There have been strong rallies that quickly become undone in the following days. The market is still even for the month, but it looks very unsteady.

Last week, I made the case that we may be amid a commodity bull market and that it makes sense to have a percentage of your portfolio allocated to commodity companies. Many commodities are breaking out to the upside, yet many commodity companies continue to trade incredibly cheaply.

September lived up to its bad reputation. The S&P 500 fell 4.8% for the month. But September is over. Now it’s October, which is historically only the second-worst month of the year. What now?

This week’s note includes The Catalyst Report. We encourage you to take a look at this – it is popular among many of our subscribers and unique on Wall Street.

We’re sticking with a cautious stance—selling stocks that crack, holding plenty of cash and focusing more on capital preservation until the buyers reappear.

Since bottoming at the end of March, stocks in the marijuana sector have been building a base, with the best stocks in our portfolio still showing a healthy pattern of higher lows. But we still don’t have a renewed uptrend, and that’s OK. We’re patient. What we do have are 200-day moving averages that are coming close to our stocks and that, ideally, will provide support.

The top five holders of this closed-end fund are: Morgan Stanley, McGowan Group Asset Management, Inc., UBS Group AG, Wells Fargo & Company, and Invesco Ltd. The fund pays a current annual dividend yield of 7.19%, paid monthly.

Wednesday has witnessed some mixed action among the key metals, with liveliness in silver, weakness in copper and platinum and exceptional strength in steel.

This clothing retailer beat Wall Street’s estimates on both the top and bottom lines, posting revenues $535.6 million (up 44%), and EBITDA of $11.6 million, compared to the forecast of a loss of $5 million to $9 million.

This gold producer beat analysts’ earnings estimates by $0.02 last quarter, and four brokerage firms have boosted their EPS forecasts for the company in the last month.

This closed-end fund focuses on high-yielding debt (income).

In the past 30 days, five analysts have increased their EPS estimates for this benefits management company.

Wednesday has witnessed some mixed action among the key metals, with liveliness in silver, weakness in copper and platinum and exceptional strength in steel.

The good news this week is that the state of Connecticut appears close to marijuana legalization, as the state Senate passed legislation early Tuesday morning, with an unexpectedly close 19-17 vote. Today—the last day of the 2021 session—the bill heads to the House of Representatives, which is expected to approve it. But you never know.

This insurance company beat analysts’ earnings estimates, posting EPS of $6.11, compared to the estimate of $3.87. The shares have a current annual dividend yield of 2.38%, paid quarterly.

Earnings estimates for this auto seller have risen by 35.7% in the past 60 days, with the June quarter EPS now expected to come in at $2.58.

Moving Biogen (BIIB) from BUY to SELL.

A few Cabot Options Trader subscribers have asked me about ways to protect gains in their portfolios, so I thought I would write to everyone with a couple of strategies using options to hedge your portfolio.

A subscriber recently asked me if I keep a journal of my trades. Many traders keep journals so they can look back at their trades and evaluate what they did right and what they did wrong.

Want to know how the big institutional investors use options? Here is an example of how one trader spent $132 million on three technology stocks.

Options trading has its own vernacular. To know how to do it, you need to know what every options term means. Here are some of the basics.

Our Cabot Momentum Trader’s market timing system consists of two parts—one based on the action of three select, growth-oriented market indexes, and the other based on the action of the fast-moving stocks Cabot Momentum Trader features.